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A number of business groups have signed an open letter to the UK Government asking it to commit to delivering the full High Speed 2 rail link - Edexcel - A-Level Economics A - Question 4 - 2021 - Paper 2
Question 4
A number of business groups have signed an open letter to the UK Government asking it to commit to delivering the full High Speed 2 rail link. This will connect Lond... show full transcript
Worked Solution & Example Answer:A number of business groups have signed an open letter to the UK Government asking it to commit to delivering the full High Speed 2 rail link - Edexcel - A-Level Economics A - Question 4 - 2021 - Paper 2
Step 1
Explain one likely impact of this project on aggregate supply in the UK.
Answer
One likely impact of the High Speed 2 rail link project on aggregate supply in the UK is an increase in aggregate supply due to improved transportation infrastructure.
This project, costing £56 billion, is expected to not only reduce journey times by up to 50% but also enhance productivity across the economy. Faster transport links will allow workers to commute more efficiently, thereby increasing their productivity and overall economic output.
Furthermore, this improvement in infrastructure can lead to better logistical operations for firms. Quicker movement of goods means that firms can operate more efficiently, thus potentially increasing their output and contributing positively to aggregate supply.
Step 2
Explain the likely impact of the change in the exchange rate of the pound shown in the graph from 1st January 2018 to 1st January 2019 on the UK current account of the balance of payments.
Answer
The graph illustrating the change in the exchange rate of the pound from January 2018 to January 2019 demonstrates an appreciation/depreciation that will impact the UK current account. If the pound appreciated, UK exports would become more expensive for foreign buyers, potentially leading to a decrease in export volumes. Conversely, imports would become cheaper, which could increase the volume of imports.
In contrast, if the pound depreciated, UK exports would be cheaper for foreign buyers, likely boosting export volumes, while imports would be more costly, potentially decreasing import volumes. This fluctuation directly influences the current account by altering the trade balance.
Step 3
Government spending on the High Speed 2 rail link is an example of which of the following?
Answer
The correct answer is B. Capital expenditure. Government spending on infrastructure projects like the High Speed 2 rail link falls under capital expenditure, which refers to the funds used to acquire or maintain fixed assets, such as infrastructure, buildings, and equipment. This type of spending is aimed at future economic benefits and does not qualify as automatic stabilisers, current expenditure, or transfer payments.